Banking

BlackRock beats estimates with 16% profit decline

Asset manager reports net inflows during second quarter

SamMamudi

NEW YORK (MarketWatch) -- BlackRock Inc. on Tuesday became the latest asset manager to beat Wall Street estimates for the second quarter as it said its profit dropped 16%.

BlackRock reported a profit of $218 million, or $1.59 a share, down from the year-ago period's net income of $274 million, or $2 a share.

BlackRock
BLK, -0.46%
said adjusted income for second quarter was $1.75, but its results were ahead of the $1.58 a share average estimate predicted by analysts surveyed by FactSet Research. Analyst estimates are typically on an adjusted basis.

Shares of the firm were down just over 2% in early market trading. The stock is up about 34% this year.

The results are welcome relief for an industry battered by some of its all-time worst results over the past two quarters.

In the first quarter of the year, BlackRock reported a 65% profit drop to 62 cents a share.

"The BlackRock business model is clearly working," said Laurence Fink, BlackRock chairman and chief executive, in a conference call on Tuesday morning.

As the markets have stabilized, clients' fears have eased and they've been asking questions about asset allocation choices, he said.

"Our comprehensive platform of risk analytics from BlackRock Solutions, and our [broad] product range allows us to work with clients as never before," he said.

BlackRock's revenue for the quarter was $1.03 billion compared to analysts' expectations of revenue of $1.01 billion. Revenue was down 26% compared to the year-ago period.

The firm also reported a 36% drop in operating income, to $261 million, and a 22% decline in operating costs, to $768 million.

BlackRock saw overall net inflows of $15.2 billion in the second quarter and said assets under management on June 30 were $1.37 trillion, up 7% from March 31. The firm saw net inflows of $8.3 billion from the U.S. and $6.9 billion from international investors.

"Flows reflected a notable shift in investor sentiment and a willingness to redeploy cash across the risk spectrum," said the firm in a statement. "Specifically, net new business in long-dated strategies totaled $28.5 billion, offsetting $7.5 billion of net outflows in cash management products and $5.8 billion of distributions in advisory mandates."

Fixed-income offerings saw $15.5 billion in net inflows, while equity products saw net inflows of $15.6 billion. Among the stock offerings, emerging markets, global allocation, world mining and European stock strategies were most favored, said Fink.

BGI deal

Fink said BlackRock's $13.5 billion acquisition of Barclays Global Investors should be completed "either very, very late in the fourth quarter or very, very early in the first quarter of 2010."

Clients are "very excited about the combination" said Fink, with questions being asked about how to blend passive products with actively managed products. In the aftermath of the market crash, "more clients are taking a conservative approach," he added, and they are looking at passive investing more than ever. BGI is one of the world's largest managers of index-tracking products.

Speaking more generally, Fink said that BlackRock's business strategy was necessary given the changing views of clients.

"Scale and a full range of products will be key for a successful model for an asset management company," he said. "Clients want more substantive relationships with a few [asset managers] -- [whereas] historically they've been frightened of scale and frightened of having too large of a relationship."

"BlackRock is well-positioned to benefit from peaking interest in exchange-trade funds," said Isabel Schauerte, analyst at Celent. "The marriage not only instantly catapults BlackRock to the top of the ETF space, but is also likely to result in products that combine aspects of both the active and the passive investment management world."

"Hence, the combined entity has the means to package and launch products that other players are, for the time being, devoid of," added Schauerte.

Asked about reports of BlackRock buying the money-market business of Columbia Management, a unit of Bank of America Corp.
BAC, +0.61%
Fink said, "We are not interested in doing acquisitions...we are not interested in working on any large-scale mergers."

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